Stocks fell Thursday after a key report showed higher-than-expected inflation and more deadly violence in Iraq weighed on investor sentiment.

In early morning trading Thursday, the blue-chip Dow Jones industrial average (searchwas down 36 points at 10,341 while the technology-packed Nasdaq Composite Index (searchwas down 18 points at 1,980. The broader Standard & Poor's 500 Index (searchwas down 6 points at 1,127.

But with the focus on interest rates ahead of the Federal Reserve Open Market Committee (search) meeting at the end of the month, the hefty jump in the May producer price index (PPI) dragged on the market.

The measure of prices paid to farms, factories and refineries shot up 0.8 percent last month, the Labor Department (search) said. It was the biggest jump since March 2003, as prices received for food and energy shot up. The core producer price index, which strips out the volatile food and energy costs, gained a larger-than-expected 0.3 percent.

Economists polled by Reuters had expected a 0.6 percent rise in overall producer prices with the core index up 0.2 percent.

"Inflation was not a problem for the last 48 hours, now inflation is back according to the PPI numbers," said Phil Flynn, vice president and senior market analyst at Alaron Trading Corp. "With yesterday's big jump in capacity utilization, there are signs that we may start to see increasing inflationary pressures in the future."

News of a suicide car bombing that killed 35 people at an Iraqi military base in Baghdad Thursday, will also add some gloom to the market, analysts said. Guerrillas have intensified a bloody campaign to sabotage plans for U.S.-led occupation to give way to Iraqi rule on June 30.

Oil prices were also watched closely. Crude futures were a bit higher Thursday, though they are well off the 21-year highs of more than $42 per barrel hit earlier this month. New York crude was up 32 cents to $37.64 in electronic trading.

Meanwhile, another government report said the number of Americans filing initial claims for jobless aid fell a bit more than expected last week. First-time filings for state unemployment benefits fell 15,000 to 336,000 in the week ended June 12.

On the corporate earnings front, Accenture (ACN), one of the world's biggest consulting and services companies, said preliminary earnings per share for the most recent quarter rose 31 percent on strong demand for outsourcing and improved consulting business.

Among the decliners, circuit-board maker Jabil Circuit Inc. (JABL) sank $3.65, or 13 percent, to $24.40, after predicting earnings for the quarter and the year would come in below analyst expectations.

Motor home manufacturer Winnebago Industries Inc. (WGO) added $2.65, or 8.5 percent, to $34.65, after reporting earnings that surged past analyst expectations.

Ford Motor Co. (F) lost 6 cents to $15.57 after the company raised its earnings forecast for the quarter and the year. Ford cited strong performance at its financial services unit, which is seeing fewer credit losses than expected.

The Russell 2000 index, which tracks smaller company stocks, was down 4.70, or 0.8 percent, at 565.37.

Overseas, Japan's Nikkei stock average finished 0.3 percent lower Thursday. In afternoon trading in Europe, France's CAC-40 rose 0.3 percent, Britain's FTSE 100 added 0.1 percent and Germany's DAX index was down 0.1 percent.

Reuters and the Associated Press contributed to this report.